Inflation: Out of the Bag

What a wonderful time to be a FOMC member.  You could raise rates to stave off spiking inflation, and in the process: (1) choke off the stock market and real estate meltups, (2) put more pressure on overleveraged consumers and businesses (3) increase the budget deficit, and (4) throw emerging markets under the bus.

Alternatively, keep rates where they are and hope that inflation just goes away.

Sure, the BLS lies about inflation.  Instead of the stated 2.8% CPI and 3.1% PPI, the actual numbers are closer to 6-10%.  Consumers experience the actual inflation rate when they buy groceries, rent an apartment or gas up the family truckster.  So, in a sense, the Fed faces the unenviable choice of penalizing consumers in order to “save” the market.

And, make no mistake about it, saving the market has been their primary goal for the past decade.  They’ve had plenty of help, of course: the ECB, BoJ, BoE and SNB have all played an important role. Currencies, VIX, oil and gas — all are manipulated on a daily basis.

Remember when the death cross was a “thing?”  The DMA-50 crossing below the DMA-200 was supposed to signal an impending nosedive.  After central bankers got into the stock propping business in the wake of the GFC, the death cross suddenly began signaling bottoms.Lately, stocks get an assist when the DMA-50 even approaches the DMA-200… …let alone an important Fib level or channel line.Although I rail sometimes about the lack of integrity in the markets, our focus is on making money.  Fortunately, the fact that the Fed has painted itself into this corner has been quite helpful in that regard.

Oil and gas have sold off heavily since the inflation problem finally became apparent to central bankers and politicians [see: Once More With Feeling.]  USDJPY has bounced where/when we expected.  And, VIX has behaved scandalously, but predictably.Stocks typically ramp higher in the days leading up to FOMC announcements.  Depending on the decision, they either continue ramping or come unglued and backtest the former resistance through which they melted up.

The biggest question, now, is what would it take to rattle investors the algos?

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